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October 17, 2013

Payments from Domestic Migrants Dwarf International Remittances

By Jean Lee

Despite a lot of excitement about global payments, we are just beginning to learn the most basic facts about them– how much money is sent by whom, to whom, where, and how. International remittances flows could reach $515 billion by the year 2015 and are slowly starting to receive the attention they deserve from policymakers. Now, a new set of Gates reports on payments in Africa and Asia shows that domestic remittances may far surpass international remittances in frequency and magnitude.

Internal migration is widespread in virtually all developing countries, contributing significantly to urban growth over the past decades. In South Africa, for example, where 3-4 percent of the entire population moved between provinces in the five year period between 1996 and 2001, internal migration rates are particularly high.

Most internal migration, like international migration, is driven by the migrants’ search for better economic opportunities. Rural households send one or more family members – typically younger, and male – to urban centers to look for higher wages and the chance to insure against the risk of weather and other productivity shocks. Migrants then send money home, often through informal means, in person, through banks or money transfer services, or more recently, through mobile money networks.

These transfers, as well as those sent through extended family and friend networks, are an understudied and poorly understood phenomenon, but certainly – and in light of the new data – economically significant and worthy of further exploration.

“Payments and Money Transfer Behavior of Sub-Saharan African Households” and “Remittances, Payments, and Money Transfers: Behaviors of South Asians and Indonesians” -- both the work of our colleague Jake Kendall at the Gates Foundation, as well as collaborators at the Gallup organization—reveal that people surveyed in Sub-Saharan Africa are ten times as likely to have sent a domestic relative to international remittance. The frequency of domestic remittances overall is high – 14 percent of the sample overall, in eleven countries, had sent money to family members or friends within the country within the 30 days prior to the survey, with the median largest amounts sent among respondents varying between $19 (in Rwanda) and $142 in Sierra Leone. An even higher fraction, 32 percent, reported having received money from a family member or friend living in a different city or area of their country within the previous 30 days. Given the advent and popularity of M-Pesa, the majority of domestic transfers in Kenya, Tanzania and Uganda were reported as sent via mobile phone.

In stark contrast, only 1-2 percent of the sample had sent an international remittance in the previous 30 days, and just over three percent of respondents in the survey had received international remittances within the previous 30 days.

This difference highlights the need for more and better research regarding internal migration and domestic remittances, a vital feature of the economic lives of the poor. We’re filling that void with a new research project exploring how migrants in Dhaka can benefit from using mobile money to transfer remittances to their families in rural Bangladesh: more to come on that in future blog posts.